Financial Instruments

3 Months Ended

Mar. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging

In the normal course of business, the Company is exposed to risks relating to changes in foreign currency exchange rates, commodity prices and interest rates. Derivative financial instruments, such as foreign currency exchange forward contracts, commodities futures contracts, interest rate swaps and net investment hedges are used to manage the risks associated with changes in the conditions of those markets. All derivatives are recognized in the Condensed Consolidated Balance Sheets at fair value. The counterparties to the Company’s derivative agreements are primarily major international financial institutions. The Company continually monitors its derivative positions and the credit ratings of its counterparties and does not anticipate nonperformance on their part.

Foreign Currency

The Company conducts a significant portion of its business in currencies other than the U.S. dollar and a portion of its business in currencies other than the functional currencies of its subsidiaries. As a result, the Company’s operating results are impacted by foreign currency exchange rate volatility.

At March 31, 2021, the Company held foreign currency forward contracts to purchase and sell various currencies to mitigate foreign currency exposure with the U.S. dollar. The Company has not designated any foreign currency exchange forward contracts as eligible for hedge accounting and, as a result, changes in the fair value of foreign currency forward contracts are recorded in the Condensed Consolidated Statements of Operations as "Other (expense) income, net." The total notional value of foreign currency exchange forward contracts held at March 31, 2021 and December 31, 2020 was approximately $75.5 million and $78.5 million, respectively, with settlement dates generally within one year. The market value of the foreign currency forward contracts was a $0.8 million net current asset at March 31, 2021 and a $0.5 million net current liability at December 31, 2020.

Commodities

As part of its risk management policy, the Company enters into commodity futures contracts for the purpose of mitigating its exposure to fluctuations in prices of certain metals used in the production of its finished goods. The Company held futures contracts to purchase and sell various metals, primarily tin and silver, for a notional amount of $42.9 million and $25.0 million at March 31, 2021 and December 31, 2020, respectively. The market value of the metals forward contracts was a $1.0 million net current liability at March 31, 2021 and a $1.2 million net current liability at December 31, 2020. Substantially all contracts outstanding at March 31, 2021 had delivery dates within one year. The Company has not designated these derivatives as hedging instruments and, accordingly, records changes in their fair values in the Condensed Consolidated Statements of Operations as "Other (expense) income, net."

Realized gains and losses on derivative contracts are accounted for as "Operating activities" in the Condensed Consolidated Statements of Cash Flows.

Interest Rates and Cross-Currency Swaps

The Company entered into interest rate swaps to mitigate its exposure to fluctuations in interest rates on its term loan through January 2024. The interest rate swaps effectively fix the floating rate of interest payments associated with the term loan under the Credit Agreement. The Company designated these contracts as cash flow hedges and changes in the fair value are recorded in "Other comprehensive income (loss)" and reclassified into earnings as the underlying hedged item affects earnings. Amounts reclassified into earnings related to interest rate swaps are included in the Condensed Consolidated Statements of Operations as "Interest expense, net."

The Company entered into cross-currency swaps to effectively convert the initial $750 million term loan under the Credit Agreement, a U.S. dollar denominated debt obligation, into fixed-rate euro-denominated debt through January 2024. The Company is obligated to make periodic euro-denominated coupon payments to the hedge counterparties on an aggregate initial notional amount of €662 million, in exchange for periodic U.S. dollar-denominated coupon payments from these hedge counterparties on an aggregate initial notional amount of $750 million. The Company has designated these contracts as a net investment hedge of the foreign currency exposure of a portion of its net investment in its European operations. Changes in the fair value are recorded in "Foreign currency translation" in "Accumulated other comprehensive loss."

All interest payments to be paid during the last two years preceding the maturity date of the term loan will revert back to a floating rate of interest for both the interest rate swaps and cross-currency swaps. The proceeds from these contracts are reflected as cash flows from Operating Activities on the Consolidated Statement of Cash Flows.

The net result of the above hedges, which expire in January 2024, is an interest rate of approximately 2.3%, which could vary due to changes in the euro and the U.S. dollar exchange rate.

For the three months ended March 31, 2021, the Company's interest rate swaps and cross-currency swaps were deemed highly effective. The Company expects to reclassify $17.4 million of expense from "Accumulated other comprehensive loss" to "Interest expense, net" in the Condensed Consolidated Statements of Operations within the next twelve months.

Fair Value Measurements

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis:


(dollars in millions)	Balance sheet location	Classification	March 31, 2021		December 31, 2020
Asset Category
Foreign exchange contracts not designated as hedging instruments	Other current assets	Level 2	$	1.2	$	0.2
Metals contracts not designated as hedging instruments	Other current assets	Level 2	1.4		0.4

Cross currency swaps designated as net investment hedge	Other current assets	Level 2	17.4		16.3



Total			$	20.0	$	16.9

Liability Category
Foreign exchange contracts not designated as hedging instruments	Accrued expenses and other current liabilities	Level 2	$	0.4	$	0.7
Metals contracts not designated as hedging instruments	Accrued expenses and other current liabilities	Level 2	2.4		1.6
Interest rate swaps designated as cash flow hedging instruments	Accrued expenses and other current liabilities	Level 2	17.4		17.6

Interest rate swaps designated as cash flow hedging instruments	Other liabilities	Level 2	24.4		33.5
Cross currency swaps designated as net investment hedge	Other liabilities	Level 2	16.3		43.3
Total			$	60.9	$	96.7

Derivative assets and liabilities include foreign currency, metals, interest rate swaps and cross currency swaps. The fair values are determined using pricing models based upon observable market inputs, such as market spot and futures prices on over-the-counter derivative instruments, market interest rates and consideration of counterparty credit risk.

There were no significant transfers of financial instruments between the fair value hierarchy levels for the three months ended March 31, 2021.

The carrying value and estimated fair value of the Company’s long-term debt totaled $1.51 billion and $1.52 billion, respectively, at March 31, 2021. At December 31, 2020, the carrying value and estimated fair value totaled $1.52 billion and $1.55 billion, respectively. The carrying values noted above include unamortized discounts and debt issuance costs. The estimated fair value of long-term debt is measured using quoted market prices at the reporting date multiplied by the gross carrying amount of the related debt, which excludes unamortized discounts and debt issuance costs. Such instruments are valued using Level 2 inputs.